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Southwest outlines latest Max return-to-service plan

Southwest Airlines executives used much of the company's second quarter earnings call to outline how the Boeing 737 Max grounding has affected its operations, finances and fleet plan.

Assuming regulators approve the 737 Max to fly in November, Southwest aims to have at least 30 of the aircraft operating by 6 January, airline executives said on the 25 July call.

The Dallas-based carrier pulled 34 737 Max from service following the worldwide grounding in March, prompting it to cancel tens of thousands of flights and rack up $175 million in related costs in the second quarter.

On 25 July Southwest announced it removed 737 Max flights from another two months of flight schedules, pushing to 6 January the date on which Southwest expects the aircraft will be airborne again.

“Assuming regulatory approval to return the Max to service by early November, our baseline plan would be to control the process so we could provide the network at least 30 Max aircraft… by January 6," Southwest chief operating officer Mike Van de Ven says. "Then we would ramp up from there in a controlled fashion depending on the delivery schedules.”

Southwest concedes the timeline remains uncertain, noting the process for approving the 737 Max rests in the hands of regulators.

Still, based on information from Boeing Southwest expects to receive 16 737 Max from the airframer in 2019, including seven leased aircraft. But executives say most 737 Max they had planned to receive from Boeing this year will now arrive in 2020.

“We don’t have an update to our contractual delivery schedule with Boeing at this point, which shows 41 remaining deliveries this year,” says Southwest’s chief financial officer Tammy Romo. “But we expect the majority of those will shift to 2020.”

Southwest is holding some older aircraft longer to cover capacity requirements until the Max is approved for re-entry. The airline now plans to retire 11 737-700s this year instead of 18, Romo said.

Southwest ended the second quarter with 753 jetliners and has not taken delivery of any aircraft since the Max grounding, Romo says.

NEXT STEPS

Southwest's latest fleet plan has the carrier resuming Max flights several months later than competing airlines estimate.

American Airlines, for instance, has removed 737 Max from its schedules through 2 November, and that carrier's executives said on 25 July they are not ready to push the estimated service-resumption day farther into the future.

In a 25 July earnings note, JPMorgan analysts called American's November service-restart plan “unrealistic".

Carriers' latest estimates account for a 26 June announcement from Boeing that it was working to address a new issue identified by the Federal Aviation Administration.

The airframer confirmed on 25 July plans to deliver an updated software package to regulators in September, and it expects those regulators will clear the aircraft to fly early in the fourth quarter.

But also on 25 July FAA acting administrator Dan Elwell raised doubt the approval process will conform to Boeing's latest timeline.

“We don’t have a timeline. Don’t have October. Don’t have August. Don’t have 2021,” Elwell said, according to Reuters.

Regulators have repeatedly insisted they will clear the Max to fly only after thoroughly vetting the aircraft.

“We’re unhappy that it’s taken so long, and we’re in the dark, just like you are, on a number of technical matters,” Southwest chief executive Gary Kelly said in a July 25 CNBC interview. “Our pilots are heavily engaged and working with Boeing to understand the changes in terms of the software, and impact on flight control systems.”

Once the grounding lifts, Southwest faces the task of bringing into service three distinct groups of 737 Max, Van de Ven says.

One group includes the 34 aircraft Southwest pulled from service when the grounding took effect. Southwest estimates it may need one to two months to perform maintenance required to bring those aircraft, which are in storage at Victorville, California, to operational readiness, Van de Ven says.

Another group includes 737 Max already produced and stored by Boeing, but not yet delivered. Southwest anticipates it could receive those at a rate of three weekly.

The other group includes aircraft that will be delivered normally from Boeing as they come off the production line, Van de Ven says.

Southwest also anticipates needing 30 days for pilots to complete new training required by regulators, assuming that training does not include time in a flight simulator.

Kelly told CNBC he hopes the airline is “more or less” back on track with its fleet plan by the middle of 2020.

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